The Home 6
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Post by The Home 6 on Jan 18, 2015 14:58:30 GMT -5
First things first: our renters have made NO indication that they want to move. They are the most lovely renters, we have never had a problem with them, and after reading horror stories from other landlords, I wish I could send them to some of you! If they do move. Which they have never said they want to do. From a financial standpoint at the moment- our rental home is a money pit. We charge our renters $900 per month and are paying $1450 on the mortgage. (~$125 of that is extra principal.) So that's a loss of $6600 per year. We are also paying for bug treatments every 3 months, and termite inspection every year, also home warranty. The house is worth $146,000 according to Chase, $134,000 on Zillow, and $150,000 at Smartzip. We owe $186,000 on the mortgage. If our renters ever decide to move (it is a 3 bedroom, 1 1/2 bath house and they just had kid #3), my husband wants us to sell. I don't know what I want to do. I'd like to hear your advice.
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Deleted
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Post by Deleted on Jan 18, 2015 15:34:59 GMT -5
Any indication of what property values are doing in the area? Why are you sending extra to principle right now?
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The Home 6
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Post by The Home 6 on Jan 18, 2015 15:41:21 GMT -5
Home prices in the area are creeping back up, and when I say creeping, I mean like a nonagenarian on the Interstate. We are sending extra to the principal just because we've always paid that much on the mortgage. I'm weird.
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justme
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Post by justme on Jan 18, 2015 15:49:49 GMT -5
So you can't sell anywhere near your mortgage owed. Which means you'd have to do a short sale or foreclosure. So if you're serious on selling I'd stop throwing extra good money after bad. Actually I'd probably stop either way and start putting it in savings, more cash gives you options. Your loss is only 5100 a year, you're choosing to lose the extra 1500.
Is the rent market value?
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Lizard Queen
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Post by Lizard Queen on Jan 18, 2015 15:55:09 GMT -5
Does the $900 cover all the expenses on the home other than the principal pay-down?
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The Home 6
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Post by The Home 6 on Jan 18, 2015 16:04:43 GMT -5
The rent is at least 200 under market value. The "real" mortgage payment is 1325 and change.
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phil5185
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Post by phil5185 on Jan 18, 2015 16:15:39 GMT -5
$186k owed, about $140k market value. With our houses, I never buy equity, I wait for the market to give me equity. In your case, it might take 7 to 10 years for the value to go back north of $186k - but I'd hate to pay $50,000 to get rid of it.
Is this house in AK? Is it near a Base? (My best renters were military, low wear & tear, always left house in good shape, no slow-pays)
I would stop buying the home warranty, cheaper to self-insure. And I definitely would quit prepaying $1500/yr. When it's time for a rent increase, that $5100/yr Neg Cash flow will start dwindling.
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Bonny
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Post by Bonny on Jan 18, 2015 16:18:30 GMT -5
So around $50k underwater if you included sales costs to sell or about 33% underwater. Ouch.
When did you buy the property?
Depending on what State the property is located the lender may force you to take on the unpaid balance as unsecured debt before they allow a short sale.
What state is the property located in? Is this a VA loan? If you did allow a foreclosure would that affect your or your DH's security clearance or employment opportunities?
I would certainly increase the rent to get you closer to market rate and to staunch some of the bleeding. If this is not a VA loan I probably wouldn't pre-pay the mortgage either.
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Lizard Queen
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Post by Lizard Queen on Jan 18, 2015 16:18:49 GMT -5
The rent is at least 200 under market value. The "real" mortgage payment is 1325 and change. What I mean is, what part of that $1325 is principal pay-down? I think one way to look at it is, are you getting any of your principal paid down by your renters, or are you subsidizing their lives by covering all of the expenses associated with the house? Interest + escrows + bug stuff and other things you included in your summary. At the very least, I would want the rent to cover all of these expenses. I think you should cut your losses and sell if they aren't being covered.
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Deleted
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Post by Deleted on Jan 18, 2015 16:20:24 GMT -5
But Phil, at 5k a year loss, in 10 years they will still pay 50k...
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phil5185
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Post by phil5185 on Jan 18, 2015 16:20:34 GMT -5
A reminder: The First Law of Landlording - never rent to an acquaintance, a friend, a co-worker, and never ever to a relative - you need an arm's length formal agreement with a stranger.
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Deleted
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Post by Deleted on Jan 18, 2015 16:22:16 GMT -5
I don't, think its a friend, but if raising rent 200$+ loses a good tenant for an empty or bad tenet...
I would think an increase of some kind is in order, and stop paying extra.
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The Home 6
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Post by The Home 6 on Jan 18, 2015 16:31:08 GMT -5
So around $50k underwater if you included sales costs to sell or about 33% underwater. Ouch. When did you buy the property? Depending on what State the property is located the lender may force you to take on the unpaid balance as unsecured debt before they allow a short sale. What state is the property located in? Is this a VA loan? If you did allow a foreclosure would that affect your or your DH's security clearance or employment opportunities? I would certainly increase the rent to get you closer to market rate and to staunch some of the bleeding. If this is not a VA loan I probably wouldn't pre-pay the mortgage either. I'll try to get yours and Phil's questions in one answer. The property is in Virginia, and we bought in 2008. Yeah, height of stupidity. But we thought we would be near that base for at least 4 years. 1 1/2 years later, we moved. It is a a VA loan, and a foreclosure would look very bad on DH's security clearance. (My employment opportunities? surely you jest, madam!) Frozen Lizard, I cannot recall how much of the 1325 is principal. I know that 792 is interest, based on my mortgage interest statement, minus the escrow, I am going to say $380 is principal.
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The Home 6
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Post by The Home 6 on Jan 18, 2015 16:32:50 GMT -5
I know I KNOW we need to increase the rent. I am the world's meanest bleeding heart. But it has been 5 years, nearly 6.
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Lizard Queen
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Post by Lizard Queen on Jan 18, 2015 16:40:22 GMT -5
Frozen Lizard, I cannot recall how much of the 1325 is principal. I know that 792 is interest, based on my mortgage interest statement, minus the escrow, I am going to say $380 is principal. I calculate a minimum rent payment of $945/month + whatever you're paying for those extras (converted into a monthly payment). You are subsidizing their housing by keeping the rent so low.
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The Home 6
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Post by The Home 6 on Jan 18, 2015 16:48:01 GMT -5
So $1000 wouldn't be too much? The bug service is 650 per year, and I am completely on board with cutting out the home warranty. Especially with us moving relatively closer, I would rather just deal with things as they come up. We have enough in savings to cover anything short of a roof collapse.
please God, don't let the roof collapse.
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phil5185
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Post by phil5185 on Jan 18, 2015 17:28:36 GMT -5
Well, with my houses, it's usually just a tree falling on the roof. BTW, on a $150k rental house, your federal tax break for depreciation is about $1200/yr, that adds about $100/m to your rent check.
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gooddecisions
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Post by gooddecisions on Jan 18, 2015 17:59:22 GMT -5
So you can't sell anywhere near your mortgage owed. Which means you'd have to do a short sale or foreclosure. So if you're serious on selling I'd stop throwing extra good money after bad. Actually I'd probably stop either way and start putting it in savings, more cash gives you options. Your loss is only 5100 a year, you're choosing to lose the extra 1500. Is the rent market value? Ahem, you don't get a short sale or foreclosure just because you owe more than the home will sell. Prior to the housing crisis, in this scenario- the sellers brought money to closing.
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justme
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Post by justme on Jan 18, 2015 18:07:23 GMT -5
So you can't sell anywhere near your mortgage owed. Which means you'd have to do a short sale or foreclosure. So if you're serious on selling I'd stop throwing extra good money after bad. Actually I'd probably stop either way and start putting it in savings, more cash gives you options. Your loss is only 5100 a year, you're choosing to lose the extra 1500. Is the rent market value? Ahem, you don't get a short sale or foreclosure just because you owe more than the home will sell. Prior to the housing crisis, in this scenario- the sellers brought money to closing. True. You don't necessarily get one, I was assuming they didn't have the 50+k to bring to closing.
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The Home 6
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Post by The Home 6 on Jan 18, 2015 18:30:33 GMT -5
It would COMPLETELY wipe out our savings and mutual funds, but yes, we could scrape together 50 grand. I really don't like that option, though.
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Deleted
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Post by Deleted on Jan 18, 2015 18:45:47 GMT -5
Are you serious? You haven't raised the rent in nearly 6 years?!
I don't think you need to worry about them going anywhere.
The first thing I would do is raise the rent, not to market value, but halfway. Then I'd raise it the other half a year later. Here there are laws about how much you can raise the rent, on the anniversary of the lease. I'd look into that find out what they should be paying, and raise them half of that now, and half of that a year from now, so that in a year from now they'll be paying market value.
Then I would see if there is an easy fix I could do to increase the value of the house (although I know you can't do it while it's rented). Finish the basement? Add a second bathroom?
And then yes, I'd try to sell. But, I'd try to minimize my losses first.
ETA: Unless you plan to move back there one day. Do you?
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The Home 6
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Post by The Home 6 on Jan 18, 2015 19:22:15 GMT -5
There are no plans to move back to the house and live there. No basement, but adding a 2nd bathroom would definitely up the resale value.
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Bonny
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Post by Bonny on Jan 18, 2015 19:59:28 GMT -5
I think with the VA loan you're going to either need to live with the situation or if you want to sell be prepared to bring money to the table. Is the house in NoVa or closer to Norfolk?
First I would do my homework and find out what current market rent is.
I'd be careful about raising it more than $100 unless it's REALLY low; for example if FMV is $1400. A 10+% increase is a lot especially if they have been good tenants.
You actually want turnover at about 5 years BTW. The house is going to need some fix up and if you're that far under market you'll recover the cost quickly.
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The Home 6
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Post by The Home 6 on Jan 18, 2015 20:11:11 GMT -5
It's closer to Norfolk. Rents for similar homes in the area range from 1100-1400. If it's going to mean wiping out all the money that we have saved up, then it's more like DH having to live with the situation. He's more the one that wants to cut our losses on the house. It would take a lot to make me liquidate all of our nest egg. That's the money that we are going to use to buy our real retirement house!
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Bonny
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Post by Bonny on Jan 18, 2015 20:15:47 GMT -5
It's closer to Norfolk. Rents for similar homes in the area range from 1100-1400. If it's going to mean wiping out all the money that we have saved up, then it's more like DH having to live with the situation. He's more the one that wants to cut our losses on the house. It would take a lot to make me liquidate all of our nest egg. That's the money that we are going to use to buy our real retirement house! What's the interest rate on the loan BTW? Have you checked into whether the VA will lower the rate? I'm thinking VA rates were probably around 5.5% in 2008?
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The Home 6
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Post by The Home 6 on Jan 18, 2015 20:25:50 GMT -5
We re-fied and lowered it to 4.5%? I want to say. Maybe it's 5%. Do you think they would go lower?
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Bonny
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Post by Bonny on Jan 18, 2015 20:31:17 GMT -5
We re-fied and lowered it to 4.5%? I want to say. Maybe it's 5%. Do you think they would go lower? Can't hurt to ask. I think conventional 30 year fixed rates are around 3.5. VA will probably be a little higher.
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gooddecisions
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Post by gooddecisions on Jan 18, 2015 20:33:22 GMT -5
If it were me, I'd bump rent up to $1000. If they accept great, if they don't- even better because you can get tenants in that will pay $1400. Stop paying the extra $125 immediately and start stashing that money in your brokerage account or even Roth if that's not maxed. Shop for a lower homeowners insurance. And, definitely talk to a mortgage company about a lower rate. Good luck!
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The Home 6
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Post by The Home 6 on Jan 18, 2015 21:09:53 GMT -5
Thank you all for your advice! I'm trying to take care of this stuff NOW rather than after we move, and I forget all about it. Part of my New Year's money resolution was to save as much money as I can, and this would qualify.
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zibazinski
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Post by zibazinski on Jan 18, 2015 21:20:19 GMT -5
Yup, I'm not raising the rent on my last tenant because I'm booting her either this year or next. Otherwise, her rent would be getting raised.
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